Understand the essentials of pension auto-enrolment
Understanding the Essentials of Pensions Auto-EnrolmentColin WalkerIndependent Financial Adviser
Today we will look at∗ Employer concerns!∗ Preparing for Automatic Enrolment∗ When do I have to have my scheme in place?∗ Who is eligible for Automatic Enrolment?∗ Employee Communications∗ Contributions – phasing In∗ Opting Out
Today we will look at∗ Additional Requirements∗ Enforcement & Record Keeping∗ Employers- who deals with Auto EnrolmentIssues?∗ What makes a scheme qualifying?∗ Is there anything I can do to fund this moreefficiently?∗ Questions
1.3m UK employersApprox 280,000 employersPay less than a 3%Approx 750,000 employersCurrently offer no provisionApprox 270,000 employersPay more than 3%Source: ttp://www.dwp.gov.uk/docs/factsheet-impact-reforms-sept09.pdf
• 67% of respondents said employers are concerned bythe cost of meeting the long-term compliancerequirements.• 38% of respondents said employers are worried aboutensuring they have an efficient way of integratingauto-enrolment with their payroll functions to gatheraccurate contribution, opt-out and employee profiledata.• 33% of respondents said employers are concernedabout putting a compliant pension scheme in place intime for their staging date.* Survey carried out by Aviva - September 2012Employer Concerns!
∗ Auto Enrolment October 2012- February 2018∗ Staging date depends on employer size, but can bebrought forward∗ Employer must enrol eligible employees (job holdersinto qualifying Scheme)∗ Provide information to all employees∗ Eventually Employer required to pay 3% & Employee5% of qualifying earnings (minimum 8% overall)∗ Register with TPR and keep records∗ 4-8 million new savers in workplace from 2012∗ Additional £10bn-15bn annual savings by 2050What’s Happening And When?
Preparing for Automatic EnrolmentEmployer-no scheme∗ Find out Staging Date∗ Assess the workforce∗ Determine earning definitions∗ Calculate costs∗ Consider scheme type∗ Communicate to workers∗ Plan implementation∗ Enrol eligible job holders∗ Register with TPR & keeprecords∗ Contribute to workerspensionsEmployer-with scheme∗ Find out Staging Date∗ Assess the workforce∗ Review/determine earningsdefinitions∗ Calculate Costs∗ Review existing Scheme∗ Consider scheme type∗ Communicate changes/terms toworkers∗ Plan implementation∗ Enrol eligible job holders∗ Register with TPR & keeprecords∗ Contribute to workers pensions
When do I have to have my scheme in place?Employer Staging DatesEmployer size Auto-enrolment staging datePAYE scheme size Staging date120,000 or more 1 October 201250,000-119,999 1 November 201230,000-49,999 1 January 201320,000-29,999 1 February 201310,000-19,999 1 March 20136,000-9,999 1 April 20134,100-5,999 1 May 20134,000-4,099 1 June 20133,000-3,999 1 July 20132,000-2,999 1 August 20131,250-1,999 1 September 2013800-1,249 1 October 2013500-799 1 November 2013350-499 1 January 2014250-349 1 February 201450-249 1 April 2014 to 1 April 2015Test tranche <30 Employees 1 April 2015 to 30 June 201530-49 Employees 1 August 2015 to 1 October 2015Less than 30 Employees 1 January 2016 t0 1 April 2017New Employers 1 May 2017 to 1 February 2018The rules for staging within each size grouping have still to beconfirmed.
Who is eligible forAutomatic Enrolment?Assessing and categorising the workforce2013/2014 levelsQualifying EarningsAge < £5,668 £5,668 - £9,440 > £9,44016-21 Entitled Worker Non-eligiblejobholderNon-eligiblejobholder22-SPA Entitled Worker Non-eligiblejobholderEligible jobholderSPA-75 Entitled Worker Non-eligiblejobholderNon-eligiblejobholder
Employee Communications∗ Advising the ‘assessed workforce’ about AutomaticEnrolment process∗ Set time limits∗ Advise employees of their right to ‘opt-out’∗ Tell them how they may be affected (changes if anexisting member, what it means for those not already amember)∗ Must be in writing, can include email - gather/provideemail addresses
A/e dateEmployer gives info tojobholderContract deemedAuto-enrolment processInfo window max.1 mth1stcontributioncollected on paydayJobholderopts out2ndcontributioncollected on paydayOpt-out period – 1 mth (6wks if invalid) Refund – 1 mthEmployerreimbursescontributionsProvider/scheme givesinfo to jobholder
Contributions – phasing inBased on Qualifying Band EarningsSteady StateDefined contribution 1% employeecontribution3% employeecontribution5% employeecontributionDefined contribution 1% employercontribution2% employercontribution3% employercontributionStaging period
Opting OutOpting outEngage Yourworkforce1 monthWindowOptoutNoticeFill inNoticeRefundWorkerInformProviderRefundEmployerReviewEngage yourWorkforce1 monthWindowOpt outNoticeFill inNoticeRefundworkerInformProviderRefundEmployerDefault ‘re-enrolment date’ is 3rdanniversary of Employer staging date every3 years.
Additional RequirementsAll Employers will have additional regulatoryrequirements∗Employers prohibited from incentivising opt outs∗Register with TPR to show they are meeting theirduties (TPR will write to all Employers)∗Payments will be monitored by Administrators orScheme Trustees who need to report failures∗Must keep records for 6 years∗Must retain Opt in & Opt Out notices for 4 years
EnforcementFines from the RegulatorStage 1 - A compliance/unpaid contribution noticeStage 2 - Fixed penalty of £400Stage 3 – Escalating daily penaltiesNumber of Persons Prescribed daily rate1-4 £505-49 £50050-249 £2,500240-499 £5,000500+ £10,000
Record keeping∗ Responsibility with Employer∗ Records about jobholders & workers – via payrollrecords? name, NI, opt-in, joining notice∗ Records about scheme pension scheme reference, scheme name & address∗ 6yrs minimum (opt-outs 4yrs)∗ Capable of Regulator scrutiny if requested
Number of EmployeesPensions Dept/HumanResources? ‘Payroll’OrganisationEmployers – Who Deals With AutoEnrolment Issues?largemediumsmall
What makes a scheme qualifying∗ Does it permit Automatic Enrolment?∗ Are employees enrolled automatically within 3months of joining?∗ Does the scheme have a “default” investment option?∗ Recognising the likely characteristics & needs ofemployees∗ Appropriate balance between risk & return∗ Glide path to safer assets as retirement approaches∗ Does it meet one of the minimum contribution tests?∗ Does it have an opting out facility?
Qualifying scheme choiceChoices for employersExistingdefined benefit& definedcontributionschemesNew definedcontributionauto enrolmentschemesExisting/newNEST
∗ Chosen scheme must operate automatic enrolment - no memberdecisions or actions∗ Adjust existing Group Personal Pension or Occupational Pension?∗ Or set up new scheme?∗ Different solutions for employees – min contributions for some, higherfor others?∗ Combined GPP and NEST solution?− Lower earners, highly transitional employees go to NEST, others toGPP− Non-discriminatoryTypes of Scheme?
Types of Scheme?∗ A qualifying scheme:– PP or occupational scheme– minimum contribution levelmet∗ An A/E scheme is aqualifying scheme that:∗ can auto-enrol jobholders∗ initially and every 3yrs∗ no member action or decisions∗ Can be a private scheme orNEST
NESTSchemeDC occupational schemeTrustee corporationAdministrationTataCharges0.3% AMCCharge on contributions of 1.8%DecumulationSelf-service decisionFocused choice – panel of providersInvestmentVery cautious
“…the overarching view is that salarysacrifice is here to stay, and will prove tobe a valuable tool for advisers looking tomanage the transition to autoenrolment.”Source: Corporate Adviser – September 2010Is there anything I can do to fund thismore efficiently?
Arrangement between the Organisation andemployee to give up part of their future earnings(salary) in return for a non-cash benefit The non-cash benefit is a contribution by theEmployer to the Employee’s pension plan Reduced earnings means reduced liability to incometax and National Insurance Nominal Salary can be used – other employeebenefitsWhat is salary sacrifice?Note: all views expressed in relation to salary and bonus sacrifice are based on ourunderstanding of the procedures adopted by an Organisation, and current taxation law andHM Revenue & Customs practice, which may change.
Salary Sacrificetakehome,£0.68NI, £0.12tax,£0.20For every £1.00 earned....∗ 68 pence in your hand∗ Grossed up for Tax Relief,still only 85 pence.∗ Or using Sacrifice, original£1.00 + Employer NationalInsurance saving of 13.8%∗ Produces new employercontribution of £1.14!This information is based on a Basic RateTax Payer for 2012/2013
Without salarysacrificeWith salarysacrificeYour gross earnings £30,000.00 £28,200(£30,000 - £1,800)Income tax on your grossearnings£3,752.00 £3,752.00NI contributions on your grossearnings (12%)£2,669.40 £2,453.40Employee (gross) pensioncontribution (with tax reliefadded)£1,800.00 £0Total employer contribution toyour pension plan a year£2,700.00 £4,500(includes theadditional £1,800sacrificedTake-home pay £21,778.60 £21,994.60Salary sacrifice – a tax efficientway to saveWe’ve assumed:• you’re earning £30,000 a year (20% basic rate tax payer)• you’re contributing £1,800 (6% of your pensionable salary)• your employer is contributing £2,700 (9% of your pensionable salary)
∗ 1st January 2013∗ Changes to Adviser Remuneration∗ Abolition of Commission∗ Financial Adviser Charge∗ How is this paid?∗ FeesRetail Distribution Review